Wednesday, November 25, 2009

LEAKY HOMES, Part 3: Thought-provoking responses

Yes, I know I promised to have Part 3 in this series posted here some time last week, but as the bishop said to the actress “Something came up.”

It’s been gratifying to see that Part One and Part Two of this series – on the myth of building deregulation and what’s going on inside your walls respectively – were picked up so widely, and received such an intelligent response. Here then are excerpts from some of the better and more colourful comments and responses from around the traps which have given me much to ponder – and hopefully you too – and say more of what needs to be said and understood. (Although, to be fair, it’s hard to take comments seriously from people with handles like “Hurlz1”)

Owen McShane: The use of untreated timber begins in Waitakere with the promotion of "sustainable" building without the use of nasty chemicals. Waitakere's "sustainable building code" still promotes the use of kiln dried timber to reduce toxicity on the environment. End result has been real fungi that really are toxic.”

George: Strangely enough the rendered plaster art deco homes with no eaves, parapet walls and internal roofs are still largely sound, seventy years after construction and a lot of them were on totara piles, the only weakness. Old time builders were up to their trade unlike the BIA who are a bunch of muppets. Fletchers and Carter Holt found them pushovers to inveigle their self serving practices into legality. The whole shower have been protected. They should be flogged. . . ”

Mawm: The real issue is 'why do I have to pay for others failing to do due diligence when purchasing a house'? Every house I bought I paid a competent inspector to ensure that it was sound. Caveat Emptor.”

Den MT: . . . as someone who also studied under Bill Porteous I think you are being particularly uncharitable about his construction knowledge. Regardless of your opinion of his links with regulation . . . he was a great and an expert in his field. . . The greatest problem I have with your War On Regulation is that you propose no feasible alternative . . . ”

Anonymous: As what you would call an extremist leftie, I was absolutely disgusted when the courts absolved BRANZ of any responsibility . . . This is the extent to which government should pick up the tab, I feel; for the costs of BRANZ failing to properly test and certify materials. . . . “The rest of the cost should mostly fall on Fletchers, Carter Holt Harvey, and James Hardie. And they should be bankrupted, not bailed out, as the Labour capitalist [sic] govt of Oz just did. In fact, the case is very strong here for limited liability to be revoked for such egregious criminal actions. That way, they can't dodge their responsibilities. . . ”

Tomahawk Kid: You are charged good money by inspectors to tell you what they require for your house to comply with their requirements. You pay them good money to inspect that these requirements have been carried out before they take your money and tick the box. II blame them! by taking your money They are taking responsibility for this to be carried out to the standards they set.”

Barry: Government inspectors do not provide anyone with guarantees of building quality. They simply check that things are done to a certain standard. That crucially is not an insurance contract.”

LGM: In NZ govt. regulations control how a building is constructed. That includes specific details such as what materials are used, how they are installed and so forth. The regulations also demand that buildings be inspected and approved by specific government appointed bureaucrats empowered to halt a construction project and even order it dismantled. That is critical. “This sort of interference has consequences including what insurances are available, what the specific terms of the master policy will state, what premiums will be struck, what variations can be negotiated (if any), the form of building contracts that are able to be negotiated and executed, what indemnities and guarantees will be made available to any of the parties, the nature and extent of the responsibilities that practitioners and professionals will assume and so on. The relationships between the parties involved in the project, every contractual aspect between them, the modes of doing business, all is affected to the point of grotesque distortion by the presence of government interferences. Can't you understand that? There is the saying, ‘You can't contract out of the law.’ Think on what that means.”

Anonymous: . . . house buyers are not really in a free market. The regulations imposed centrally distort the market, so any participant with in that market cannot be decreed to be a free and willing participant. “People with no knowledge in an area enter into an agreement with someone who purports to have that knowledge, and thus reward them for their efforts/ skills/ knowledge therein. A problem of that central regulation is the distortion of knowledge taken as bona fide with that which has not been properly tested. The systems agreed upon which were sold to the central regulator (BRANZ) as being of a standard to last in excess of 50years, however the systems/products have failed dismally. Who else should be held accountable for the very failure of the promise of the product (to keep water out), but the manufacturers/ inventors of the failed system?”

John Richards: Couldn't agree more about bringing the manufacturers to task for their part in the leaky building mess. Your argument misses one major point though. It is that "big business" helped write the legislation and therefore shares a significant portion of the blame.”

Bez: One issue you may want to also raise is building physics, heat transfer and condensation, explaining that any and all airborne moisture created in the nicely warm insulated interior will eventually condensate on the coldest non-permeable surface, i.e. the building paper where it meets the studs, this providing a nice continues layer of moisture throughout the winter months. . . By the way, many moons ago a heard a talk by a joker who used to work in a research institute for the wood and timber industry, who practically swore an oath that he had attempted in vain to discourage his bosses from certifying and promoting to stop boric treatment, precisely for the reason that he KNEW that rot would occur. I heard this in a forum, the organizers of which you would be very interested to know.”

Mort: You have put into writing what many people who are on the end of litigation directives are now coming around to accepting how you succinctly describe events and decisions as the path which lead to them being shafted. . . “James Hardie are crooked as they come. The Australian Govt had to bail them out, because they stupidly let the buggers re-incorporate in the Netherlands, while disestablishing their Australian Head Division. Thus there is no real entity with which they can actually prosecute, because it has written off its historic obligations. “Fletcher industries have probably managed to distance themselves from any comeback by hiving off the various divisions and lumping any liability with the now non trading Fletcher Forests. CHH has had its assets divested and is no longer the company it was when this saga began. Ultimately it was BRANZ/ BIA that bought the bollocks hook line and sinker from those 3 companies and legitimized the inherently broken systems, despite evidence in 1996 from the Canadian Building authorities that similar systems would lead to this type of abject failure. . . “. . . there will come a time in the future when people will look at the period when a house was built (essentially the period you ascribe as that which correlates with the existence of BRANZ until 2010), and they just won't buy it. The entire era is tainted. It will be up to the owners of non-affected houses to prove that their pride and joy is not a wet-house.”

Anonymous: Clark and her dishonest partners in crime at parliament have a lot to answer for in this debacle. Worse still is Williamson's offer the other day for the Govt to pay 10%. What a joke. They are offering 10% and taking back 12.5% in GST so they make 2.5% on their shabby transaction and then of course there is things like PAYE, tax on company profits and so on.”

Anonymous: Nice post again - good to see the issues put out there. Especially the big question - investigation into who knew about rot in dryframe timber & behind monolithic claddings (esp. Harditex)?”

Monsieur: I'm not sure about your "Bootleggers and Baptists" part where you say "chemophobes who claimed the boric salts were toxic and were poisoning the occupants joined forces with the big timber companies who wanted to charge more for selling less timber."The "Greenwash" was more likely to have originated from the building material companies themselves. The Green Party has never been against Borax timber treatments. Boric acid is fairly harmless. The only side-effect in mammals is testicular atrophy (smaller balls). I can't see the Greenies being too fussed about that.”

Hurlz1: Dryframe is like blotting paper, a drop of water soaks in and the next drop soaks in and soon you have a problem. No matter how you looked at dryframe being used in exterior walls it was always going to be a problem and the govt needs to stand up and shoulder the blame for the past actions of Labour and the Greens. The architects that specified dryframe should also have known better. The building regulations are now so over the top they are ridiculous.”

I was building my own house in the early nineties when the regs changed. We went from a simple $20 orange book to $500 or more of folders all about different materials. I'd be very surprised if many people were ever fully conversant with all the folders. It pushed up permit costs too. “The legal take is interesting - courts ultimately found that issuing WOFs to vehicles made the MOT liable, it would astonishing if the same arguments did not apply to building certification.”

Wat Dabney: The leaky houses debacle was caused . . . by the state getting involved in the house guarantee business; something that should be a purely private business.”

BJ Chip: Wat is correct. Local government has no business being in the business of building guarantees. This is not a necessary government function unless government is building the houses or government is buying the houses. “Government can inspect them for safety and whether they meet standards for connecting to the sewers, electrical grid, gas, water… whatever is appropriate, but the responsibility for the construction quality has to be held by the builder and the purchaser and the bank that holds the mortgage. The notion that local councils hold this responsibility, which was apparently inherited from some prehistoric era, is flawed.”

Owen McShane: . . . the Privy Council back in 1995 warned us that our whole approach to building regulation was balmy and left too much liability on councils. In every other modern jurisdiction council’s liability expires after say seven years or the first sale. . . “In the UK and elsewhere council liability expires after a certain time or the first on sale. At that point building surveyors can be used (just as we use marine surveyors for buying boats and the AA for buying cars) who will inspect a building and report on it for a fee. The fee is negotiable and is determined by how much comfort you seek and the perceived risk. An important part of the report is the report on the guarantees and the insurance. These reports help set the price. No guarantees and no insurance reduces the price dramatically. The fees are far far less than we now have to pay for building permits and certainly take less time. “We have set up a system which is a cash cow to be milked by consultants and council staff and as we now know offers no comfort to anyone. “Our balance between state regulation and market disciplines is totally out of whack. . . “You cannot regulate perfection unless you are prepared to see permit and construction costs go through the roof. Oops, they already have! “ . . . Makes you worry about the leaky boat syndrome doesn’t it. And the leaky car syndrome.”

BJ Chip: The ‘buyer beware’ thing is very real and it works very well in fact. I know because it is the nature of the market in the US to employ this system and I have experienced it. “. . . In the USA the ‘housing inspector’ is a separate independent entity. His/Her reports are the basis on which the house is able to be marketed. . . An inspection typically costs a few hundred $. It provides the insurance company a basis for issuing a home warranty, and a bank a basis for being confident of its lending against something that is in fact re-sellable if there is a default. Both entities have an interest in the result… and of course the prospective home buyer does as well. “. . . The difference between this system and letting the council take the responsibility is obvious. The council doesn’t have skin in the game.. at least it didn’t think so until the leaky-homes litigators wound up looking to councils to provide the damages. “The agency already existed. It WAS the council’s responsibility. They blew it. . . “The point I’m making is that the people who have skin in the game are the most likely to pay attention. With the system here, the council is taking the responsibility off the home buyer. This can only work while the council is actually shouldering the real responsibility and it has no natural reason to do so. “If the bank is taking a risk and an insurer is taking a risk, they’re going to be real careful that the house is built right and the inspections get DONE, not gundecked. If the homeowner is aware of the actual risk, he’s going to be looking for that same assurance. Trust me, it DOES work.”

Greg Out West: . . . if the current figures are $11.5b then it’s an absolute scandal that some of the names mentioned there (ie Porteous and Hardies) aren’t nationally known and reviled. It seems tragic and wrong that homeowners are being fingered for the bill. Poor buggers. I know it’s idealistic but i feel like the country owes it to them to not let this issue be swept under the carpet. I wonder what kind of dent in sales it would make if those suppliers were outed as the source of these rubbish houses?”

Chris J: . . . James Hardie should be held responsible for the leaky homes problem. ”Their products even if installed perfectly in accordance with manufacturers recommendations would never have done the job they were supposed to do. ”Even with today’s timber batten cavity system and H3.2 framing, I wouldn’t touch a Hardies monolithic cladding systems with a bargepole. Even Linea and their other fibre-cement board panel systems offer dubious durability for the future. Why? Ever left some Hardies soaking in water? (It begins to crumble in your hands when it’s wet enough). Off course the manufacture will say it needs to be kept painted however in 20, 30 or 100 years time how many homes being built today of these products are going to be have the paint worn away and the fibre cement exposed and crumbling?”

The whole issue of ‘Leaky Buildings seems to be a far more important topic up in Auckland than it is in Wellington, but there’s no reason to be smug. Outside the Auckland cities, Wellington is high on the list [from the govt’s Weathertight Homes Resolution Service website]: Auckland City Council………….2021 North Shore City Council………..445 Waitakere City Council…………..352 Manukau City Council……………125 [Rodney District Council……..92] vs Wellington City Council………….361 Christchurch City Council……….229 [Tauranga City Council…..……..156] Dunedin City Council………………..2 “Obviously there’s just quality building and architecture in Dunedin! The question over who has to pay is important for the whole country - you can see why perhaps people in Dunedin can well think that the issue should be paid for by Councils rather than by the Government . . . ”

In commenting on the Governments offer to pay 10% of a claim, a poster from the “Solving NZ’s leaky home disaster” thread on realestate.co.nz forums (quoted by David Leggott) posted the following thought…..

If the government pay out 10% of the total then they will get back 12.5% GST on all the extra activity created by the re-clads - so in effect they make 2.5% on the way through. Good one John Key!

Comment by Ken at NOT PC:

Ideas to assist home owners now.

“1/ Allow unpermitted targeted repairs up to $10,000, with only a requirement that a description of work done and a photo record be placed on the council’s record. [This is to protect property value]. 2/ Change legislation to allow a targeted repair, to be permitted, without having to upgrade the entire property to current specification. Something may be required to protect councils from greater liability. 3/ Allow permitted staged repairs, where urgent work could be done, with less urgent, but long term necessary, work delayed, even some years. 4/ Rescind legislation placing rental limitations on properties which failed to complete a Code Compliance Certificate prior to compliance changes. These properties should have the same status as pre-CCC properties, if they comply with the permit they had. 5/ Stop councils from adding costs that serve only to protect themselves. e.g., requiring that home-owners register home maintenance requirement on their title, at a cost of $2000 in legal costs. 6/ Govt has underwritten bank deposits, The least it can do is underwrite bank loans acquired to repair houses. This would give some way out for those who can utilize their own resources of time, family etc, even if it just achieved a sale, and the retrieval of some equity. 7/ Accept that an ineffective regulatory regime was the worst of both worlds. It drowned development of a market in risk, and failed to identify risk itself.

“Central Govt, or at least the taxpayers that elected them, need to do better than 10%.

“More ideas please.”

An email comment on John Gray from the Home Owners & Buyers Association of NZ (HOBANZ), about whom I talked in my first post:

I'm sure home-owners appreciate having John on their side, and he seems as honest as the day is long, but seems to me he understands the effects but not the causes.”

An email commentary on risk in the building process,and what govt could do to unravel the confusion present confusion about who exactly takes responsibility for what – a confusion resulting from govt injecting itself into the chain of responsibility:

1/ Acknowledge that this problem has resulted from the failure of regulatory bodies, charged with managing risk, in overseeing building product performance and building practice. 2/ Acknowledge that govt directed bureaucrats should be held liable for their actions and omissions, and as long as the majority wishes govt to be involved in risk management, the voting public, or at least the tax payers among them, should bear some responsibility. 3/ Acknowledge that any risk is best accessed by those with something to lose. 4/ Acknowledge that risk is difficult to eliminate, but can be priced.

“The industry that prices risk is the insurance industry. Risk pricing is the only effective method of regulating the construction industry, as it allows information on known risks to be reflected in price. Enhanced risk = higher price of insurance. I can insure a property for fire risk very easily. This is because nobody believes all fire risk can be eliminated by regulation. There is a market in fire risk. Indeed building elements are a factor in fire risk pricing, and excess can be negotiated against premium cost. Who drives a new car of the sales lot without calling their broker? Why aren’t product insurance policies, demanded by house buyers, and offered by builders and developers? Banks require fire insurance to advance mortgages, Why not comprehensive product insurance? 10 – 15yrs would cover the product risk period, with premiums diminishing over time. Product failure would not prevent insurance companies recovering from liable parties. Could it be that insurance companies see to much risk in a regulated market? Could it be that the house buyer sees their Code Compliance Certificate as an insurance policy? It would seem that councils (and their ratepayers) have been made the government’s proxy insurance company.

“Unlike real insurance, which prices risk, the government attempts to manage risk by regulation and bureaucracy. Which best informs the buyer of the assessed risk? Which allows choice and innovation in design? Which allows not just an approve/decline decision when assessing a new product, but detailed risk analysis, that can be priced? Which is likely to take risk assessment more seriously, and be better at it? Which offers the consumer more choice, in paying for the level of cover? Who would you prefer to deal with, should a problem occur? Can you see builders and developers offering pre-paid insurance, with reputable insurers, who have been involved [or their agents] in assessing the properties construction? Right now, it would be a great marketing tool [for vendors], and the cost, well reflected in the price. Anyone know of such a product?”

6 Comments:

The results of trying to fix one problem (the use of toxic chemicals to treat timber, and the use of decent timber) has created an altogether different problem..

On the surface the use of less chemicals and plantation timber saves the environment. but the life-span of a house using these methods is a quarter of that using the old methods. ie: in the past they did it once - did it right and the houses are still standing.Today the house would have to be to be built 4 times and would still need fixing - using 4 times the materials, 4 times the manpower 4 times whatever toxic chemicals they have to use, which would all come to way WORSE for the environment (and the bank ballance) than doing it once and doing it right the first time.

I can see Penn and Teller getting hold of this on and yelling "BULLSHIT"

**********Owen McShaneThe use of untreated timber begins in Waitakere with the promotion of "sustainable" building without the use of nasty chemicals. Waitakere's "sustainable building code" still promotes the use of kiln dried timber to reduce toxicity on the environment.End result has been real fungi that really are toxic.”

"“Government can inspect them for safety and whether they meet standards for connecting to the sewers, electrical grid, gas, water… whatever is appropriate, but the responsibility for the construction quality has to be held by the builder and the purchaser and the bank that holds the mortgage."

But this is just asking government to guarantee what council currently does - house build quality. What is left of 'construction quality' when 'sewers, electrical grid, gas, water…' is taken out? Just the timber frames.

Second, the issue of private insurance to cover the risk of poor build quality.

The claim that insurance companies could cover build quality risk is flawed. Insurance companies are not stupid - the last thing they want is to be saddled with the risk councils currently have!

Insuring build quality of products as expensive as houses, in which problems usually take years to show up, is extremely hazardous - if the insurer misses one bad design detail or use of dodgy material (say, mushy fibre cement panels)then the insurer could be saddled with major liabilities. This is exactly what happened to councils, and insurers have to hire from the same group of inspectors who failed to spot the leaky building flaws for councils.

And the insurers face the same killer problem councils face - liable builders & materials suppliers can use limited liability and company name changes to load up the costs onto the 'last man standing' (under the law of joint & several liability; designed to prevent consumers being scammed by dodgy manufacturers - oh, the irony), which will be the insurer rather than council.

Another flaw in private risk insurance is that prospective homeowners want to know builders offering 'build quality insurance' won't stop premium payments the next year, so builders have to pre-pay premiums for the agreed risk lifetime prior to sale. But this leaves the insurer with all revenue for that building gathered at the start of the policy, meaning their only incentive (to maximise profits) is to cut costs. That is, to look for every reason to avoid paying out on flaws found.

The insurer no longer has to balance such bad behaviour towards policyholders with the risk the holder (the homeowner) will stop future premium payments, as the full policy lifetime of premiums was pre-paid by the builder.

Hmmmm, adding to the last point I made; one could argue that builders could pre-pay 'build quality' insurance premiums for the agreed lifetime of the house into a trust, which then dripfeeds the insurer premiums each year.

That aims to keep the insurer interested in getting future premiums, and hence, they won't try to dodge payouts.

But this fails for two reasons - 1) payouts are likely to be far higher than remaining aggregate premiums, so still an incentive for the insurer to dodge payout.2) the insurer can still refuse payouts, and who can the homeowner take their remaining premiums (held in trust) to for cover? No insurer will take them on with known leaky home problems, so they are stuck with the original insurer, who refuses payout.

Anon, you could make all the same arguments about any kind of insurance, however insurance companies are in the very business of assuming risks on behalf of others and charging for it.

You say "Insurance companies are not stupid - the last thing they want is to be saddled with the risk councils currently have!" but that's exactly what they do every time they assume the risk of insuring a bad driver.

Good one on "LEAKY HOMES, Part 3: Thought-provoking responses".I just came across this website that emphasize on how to keep your home clean from toxin. The website url is http://debtfreeliving.toxinchecklist.com/

Comments on this post

The results of trying to fix one problem (the use of toxic chemicals to treat timber, and the use of decent timber) has created an altogether different problem..

On the surface the use of less chemicals and plantation timber saves the environment. but the life-span of a house using these methods is a quarter of that using the old methods. ie: in the past they did it once - did it right and the houses are still standing.Today the house would have to be to be built 4 times and would still need fixing - using 4 times the materials, 4 times the manpower 4 times whatever toxic chemicals they have to use, which would all come to way WORSE for the environment (and the bank ballance) than doing it once and doing it right the first time.

I can see Penn and Teller getting hold of this on and yelling "BULLSHIT"

**********Owen McShaneThe use of untreated timber begins in Waitakere with the promotion of "sustainable" building without the use of nasty chemicals. Waitakere's "sustainable building code" still promotes the use of kiln dried timber to reduce toxicity on the environment.End result has been real fungi that really are toxic.”
First, BJChip commenting on FrogBlog said:

"“Government can inspect them for safety and whether they meet standards for connecting to the sewers, electrical grid, gas, water… whatever is appropriate, but the responsibility for the construction quality has to be held by the builder and the purchaser and the bank that holds the mortgage."

But this is just asking government to guarantee what council currently does - house build quality. What is left of 'construction quality' when 'sewers, electrical grid, gas, water…' is taken out? Just the timber frames.

Second, the issue of private insurance to cover the risk of poor build quality.

The claim that insurance companies could cover build quality risk is flawed. Insurance companies are not stupid - the last thing they want is to be saddled with the risk councils currently have!

Insuring build quality of products as expensive as houses, in which problems usually take years to show up, is extremely hazardous - if the insurer misses one bad design detail or use of dodgy material (say, mushy fibre cement panels)then the insurer could be saddled with major liabilities. This is exactly what happened to councils, and insurers have to hire from the same group of inspectors who failed to spot the leaky building flaws for councils.

And the insurers face the same killer problem councils face - liable builders & materials suppliers can use limited liability and company name changes to load up the costs onto the 'last man standing' (under the law of joint & several liability; designed to prevent consumers being scammed by dodgy manufacturers - oh, the irony), which will be the insurer rather than council.

Another flaw in private risk insurance is that prospective homeowners want to know builders offering 'build quality insurance' won't stop premium payments the next year, so builders have to pre-pay premiums for the agreed risk lifetime prior to sale. But this leaves the insurer with all revenue for that building gathered at the start of the policy, meaning their only incentive (to maximise profits) is to cut costs. That is, to look for every reason to avoid paying out on flaws found.

The insurer no longer has to balance such bad behaviour towards policyholders with the risk the holder (the homeowner) will stop future premium payments, as the full policy lifetime of premiums was pre-paid by the builder.

Hmmmm, dilemma. Insurance doesn't work. Thoughts anyone?

Extreme leftie.
Hmmmm, adding to the last point I made; one could argue that builders could pre-pay 'build quality' insurance premiums for the agreed lifetime of the house into a trust, which then dripfeeds the insurer premiums each year.

That aims to keep the insurer interested in getting future premiums, and hence, they won't try to dodge payouts.

But this fails for two reasons - 1) payouts are likely to be far higher than remaining aggregate premiums, so still an incentive for the insurer to dodge payout.2) the insurer can still refuse payouts, and who can the homeowner take their remaining premiums (held in trust) to for cover? No insurer will take them on with known leaky home problems, so they are stuck with the original insurer, who refuses payout.

Still an epic insurance fail... ;(
Anonymous

There is no way to remove yourself from all risks of living. What is possible is to manage them.

Re insurance- the difficulty is the presence of government interference distorting the insurance market. That eclipses alternative arrangements that would otherwise be developed.

An alternative that could assist in a free market is where insurers, home owners and the like are able to demand personal guarantees from builders, material suppliers, architects, surveyors, etc.

As always, though, due diligence should never be skimped over. A sound practioner has reputation and history. So does a dodgy. There is no substitute for doing the prep work and finding out.

LGM
Anon, you could make all the same arguments about any kind of insurance, however insurance companies are in the very business of assuming risks on behalf of others and charging for it.

You say "Insurance companies are not stupid - the last thing they want is to be saddled with the risk councils currently have!" but that's exactly what they do every time they assume the risk of insuring a bad driver.
Good one on "LEAKY HOMES, Part 3: Thought-provoking responses".I just came across this website that emphasize on how to keep your home clean from toxin. The website url is http://debtfreeliving.toxinchecklist.com/